We expect Jul-16 output to rise by another 12% m- o-m to 1.715m MT. This year’s seasonal expansion would be partly offset by lower productivity due to lagged impact of CY15 El Nino; and to some extent the Eid break in early Jul-16.

Having trimmed CY16F export demand by 1%; we now expect Malaysia’s palm oil inventory to peak at 2.157m MT by end-Nov-16.

No near-term catalysts.

Based on our revised forecasts, there may be a short-lived palm oil price recovery on sequentially better Jul-16 export data – although we no longer expect palm oil prices to peak at RM2,900 this year.

At the prospect of flatter price outlook, we believe upstream counters lack any near-term catalysts.

Our top picks.

We continue to recommend Wilmar International as our pick for the sector (BUY; TP: S$3.76). We believe Wilmar would benefit from expanded presence in India through Adani- Wilmar’s proposed JV with Ruchi Soya. Wilmar continues to benefit from biodiesel allocation in Indonesia and from y-o-y higher palm oil prices for its plantations segment.

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